TMI Blog2014 (8) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... o change in opinion – Decided against Assessee. Treatment of LTCG on sale of equity shares – Employee stock option scheme – Held that:- On the date of grant the assessee has acquired certain rights i.e. the right to purchase shares in Adobe System Inc., at a particular rate by exercising the option - This right to acquire shares is a capital asset - The date of acquisition of the right is the date of grant - The assessee has exercised the option to purchase the shares only on the date on which he choose to sell the shares - what was acquired by the assessee on the date of grant was a right, which was held by him until he exercised his option to purchase share - The period of holding of the capital amount would be the period of holding of the ESOP right, which is a capital assets, is from the date of grant to the date of exercising the option - The fact as to whether the capital gain in question is a short term or long term capital gain or not has to be decided based on the period of holding of this right - If the period of holding is more than 36 months then it is a long term capital gain - The right in question is not a share held by the assessee and hence the period of 12 mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain (i) 01.10.1998 40 07.04.2000 178886 (ii) 28.08.1999 66 21.09.2000 469370 (iii) 01.10.1998 100 03.10.2000 675598 (iv) 08.11.1999 255 08.12.2000 403233 (v) 08.11.1999 150 08.12.2000 243378 Total 1970467 3. The assessee filed his return of income for the A.Y. 2001-02 on 27.07.2001 showing taxable income of ₹ 24,62,455/- which included long term capital gain of ₹ 19,70,467/- on the alleged sale of the said shares, on which he paid at the rate of 10%. The Assessing Officer processed the return under Section 143(1) on 30.08.2002, wherein he treated the long term capital gain declared by the assessee at ₹ 19,70,470/-, as short te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefrom represented the long term capital gain rather than being the short term capital gain. 2. (i) The Assessing Officer had erred in issuing notice under section 148 of the Income Tax Act on 17.1.2006 without appreciating that his predecessor had held after appreciating the detailed submissions of the appellant to the effect that the capital gain on this account represented the long term capital gain liable to be taxed at the rate of 20% under section 112 of the Act vide his order dated 28.10.2002 under section 154 of the Act. (ii) The Assessing Officer had erred in issuing the notice under section 148 of the Act on a mere change of opinion and as such the said notice was illegal, null and void. (iii) The Assessing Officer had erred in issuing the notice under section 148 of the Act without there being any prima facie material in support thereof. (iv) The Assessing Officer had erred in issuing notice under section 148 of the Act contrary to the settled position in law in the light of a number of High Court and Supreme Court judgments. (v) The CIT (A) had erred without appreciating the true position in upholding the stand of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 23.7.2005 after more than one year in respect of each transaction and as such there were long term capital gains. (ii) The lower authorities had erred in not appreciating that the appellant had computed the long term capital gain after indexing the cost of the said shares in accordance with the provisions of the second proviso of section 48 of the Income Tax Act. 3. (i) The lower authorities had erred in not appreciating that the appellant had made investment of ₹ 14 lakhs in specified Bonds under section 54-EC of the Act to avail the exemption on this account in respect of the long term capital gains. (ii) The lower authorities had erred in not appreciating that the investment in the purchase of residential house had been made out of the long term capital gains and as such the exemption of ₹ 5,30,841 was admissible under section 54F of the Act. (iii) The lower authorities had erred in not appreciating the true position and had further erred in not allowing exemptions of ₹ 14,00,000 and ₹ 5,30,841 in respect of the long term capital gains ofRs.29,00,503. 4. The lower authorities had erred in not appreciating that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Ajay Pandey and the judgment of Bangalore Bench in the case of Giridhar Krishna M. Vs ACIT (2008) 307 ITR (AT) 68 were distinguishable. 6. In ITA No. 5376/Del/2010 the assessee challenged the order of the ld. CIT(Appeals) wherein he dismissed an appeal filed against an order passed by the Assessing Officer under Section 154, withdrawing partly the deduction under Section 54F. The ld. CIT(A), Ghaziabad had dismissed the appeal on the ground that, the order under Section 154 passed by the A.O. has got merged with the later order under Section 147 dated 26.12.2008 and hence the appeal is infructuous. Aggrieved the assessee is in appeal on the following grounds:- 1. The lower authorities had erred in not appreciating the facts and circumstances of the case or the submissions of the appellant and had further erred in passing the orders, which were bad in law and on facts. 2. (i) The Assessing Officer erred in not appreciating the sale proceeds of shares amounted to ₹ 27,72,576 as against the wrong figure of ₹ 22,41,210 assumed by the Assessing Officer in working out the exemption under section 54F on account of the purchase of the residential hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating that the facts of the appellant were identical to the facts in the judgments of Hyderabad, Bombay and Ahmedabad Benches and as such the judgment of Delhi Bench in the case of Ajay Pandey and the judgment of Bangalore Bench in the case of Giridhar Krishna M. Vs ACIT (2008) 307 ITR (AT) 68 were distinguishable. 7. Ld. counsel for the assessee, Mr. Ashwani Taneja represented the assessee. For the A.Y.2001-02 he challenged the validity of the reopening on the ground that it was made on the basis of mere change of opinion which is not permissible in law and also on the fact that the Assessing Officer has passed his order on 25.07.2006 without disposing the objection filed by the assessee against the reasons recorded for reopening, which act is against the procedure laid down by the Hon ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. Vs ITO (2003) 259 ITR 19 (SC) 7.1 He argued that there was no fresh material based on which the Assessing Officer come to conclusion that the income has escaped assessment and hence the reopening is bad in law. 8. On merits, he submits that the decision of the ITAT in the case of Shri Ajay Pande does not apply to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intimation under Section 143(1)(a) and subsequent reopening of the assessment does render the order passed under Section 154 as infructuous. (c) The information received is that the assessee had received ESOP and that he exercised the options only on the date of sale of the shares. It was submitted that it had come to the knowledge of the AO that the shares were never allotted to the assessee and only rights were sold. 13. On merits, he submitted that though the assessee was granted the ESOP on a particular date, he choose to exercise the option only on the date of sale and hence the period on holding of shares if any is less than one day and hence the gain in question is a short term capital gain. He pointed out that the period of holding the right in the form of ESOP is less than 36 months and hence the gain thereon is short term capital gain. He has relied upon the decision of Shri Ajay pandey (Supra). 14. We have heard rival contentions, on a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and case law cited, we hold as follows. 15. The reasons recorded for reopening for the A.Y. 2001-02 are as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings, in the case of other employees of M/s Adobe System Pvt. Ltd. gathered information that the shares of the parent company M/s Adobe System Inc., USA are under cash less exercise option scheme and that under this scheme, the rights in the form of ESOP s is purchased and sold simultaneously as the broker deducts the purchase cost of ESOP, out of sale proceed and remits it to the present company/Trust and only the balance or difference amount is given to the employees. In other words, it has come to the knowledge of the AO, during the course of assessment proceeding of other employees of Abode Systems India Pvt. Ltd., that the assessee rights in ESOP is sold and the difference between the cost of acquisition and sale proceeds is credited to the assessee account and that it was not a case of purchase and sale of share. 17. This information, has come to the knowledge of the Assessing Officer, after processing of the return of income under Section 143(1)(a) and after rectifying the intimation under Section 154 of the Act. The said information was not in the possession of the A.O. prior to the passing of this order of rectification under Section 154. Based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of fresh material, reopening is bad in law and also for the proposition that no reopening of assessments can be made on the change of opinion. As we have held that there was fresh material and as we have hold that there is no change in opinion we held that these decisions are distinguishable of fact suffice to say that we have gone through all the decision cited and applied the proposition laid down therein to the facts of the case wherever necessary. 20. In the result, we dismiss the ground of the assessee on reopening for the A.Y. 2001-02. 21. Coming to the merits of the case, the Assessing Officer is an order passed under Section 143 has held as follows:- It is to mention that as per the policy of the company, every employee of the assessee s employer i.e. M/s Adobe Systems India Pvt. Ltd was offered shares of parent company under various schemes including ESOP scheme. This offer is given at the time of appointment as well as from time during course of service. The scheme which is offered by the company, is narrated as below:- Every employee who joints the company is offered the package beside the salary and other benefits to enter into agreement to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 8709.14 403233 5. 8.11.199 150 35.6875 8.12.2000 71 5256.56 243378 TOTAL GAIN 1970467 22. These facts could not be controverted before us by the assessee. 23. A perusal of the above demonstrates that, on the date of grant the assessee has acquired certain rights i.e. the right to purchase shares in Adobe System Inc., at a particular rate by exercising the option. This right to acquire shares is a capital asset. The date of acquisition of the right is the date of grant. The assessee in this case has exercised the said option to purchase the shares only on the date on which he choose to sell the shares. Thus, what was acquired by the assessee on the date of grant was a right, which was held by him until he exercised his option to purchase share. The period of holding of the capital amount would be the period of holding of the ESOP right, which is a capital assets, is from the date of grant to the date of exercising the option. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long term capital gains and not short term capital gains. Commissioner of Income Tax (Appeals) out of conflicting ITAT judgements has preferred to rely on only favourable to revenue ie Jaswinder Singh Ahuja (supra), overlooking others and without commenting about the relevant facts. It has not been dealt on that acquisition of valuable rights in a property amounts to a capital asset. In case of Jaswinder Singh (supra), the shares were of the same company, whereas in this case there are group companies held through trustee and there were certain RBI guidelines about non payment of price of shares and the option being exercised by assessee on the date of sale of shares. There was no trustee whereas in assessee's case there was a fixed price of allotment of rights to fixed quantity of shares and the indistinctive shares were held by a trust on behalf of assessee. Non-allotment of distinctive number of shares by trust cannot be detrimental to the proposition that assessee's valuable right of claiming shares was held in trust and stood sold by Pepsico. Therefore, there was a definite, valuable and transferable right which can be termed as a capital asset in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) is upheld. The issue on merits for the AY 2005-06 is the same as in the A.Y. 2001-02. Consistent with the view taken for A.Y. 2001-02 ITA No. 5329/Del/2010 hereby dismissed. 26. Coming to the ITA No. 5376/Del/2010 for A.Y. 2004-05 is on the issue of rectification order passed Section 154 by the A.O. on 21.03.2005 for withdrawal of excess exemption granted under section 54F of the Act. Notices under Section 154 were issued to the assessee. The assessee did not comply with the notices issued by the Assessing Officer under Section 154 of the Act. An ex-parte order was passed on 21.03.2005. This could be finally served on the assessee on 29.09.2006. The assessee in the meanwhile filed a revised R.O.I. on 03.05.2005. 27. After hearing rival contention, we agree with the contention of the assessee that the appeal against the order passed under Section 147 and the appeal against the order passed under Section 154 are separate proceedings and there is no question of merger. There should be disposed off separately. 28. As the A.O. has passed an ex-parte order, we deem it fit to set aside the issue to the A.O. for fresh adjudication in accordance with law after giving an o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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